Most investors seem to have kept faith in the stock market in Samvat 2075

But banks and NBFCs continue to remain a cause for concern

Equity prices have displayed unusual patterns in Samvat 2075. Between November 7 last year and October 26, the Nifty and Sensex have gained over 9 per cent each. But while the headline indices have done well enough, the mid- and small-cap indices have suffered capital losses, and the majority of listed stocks have lost ground. As a result, most equity investors have suffered and that has perhaps been a contributory factor in the weak consumption patterns witnessed this festive season. Despite this and the steady stream of negative news on the corporate and macro-economic front through the past 12 months, most investors appear to have kept faith with the stock market. Equity mutual funds have received stable inflows and assets under management continue to grow. Overseas investors have retained their optimism about the Indian economy, with foreign portfolio investors (FPIs) continuing to contribute substantially to both the equity and debt segments. This is at least partly due to political continuity, with the BJP retaining its grip on governance by winning handsomely in the Lok Sabha elections this year.

Apart from weak consumption, the worries in Samvat 2076 centre round the pattern of default that has become increasingly common in the debt market. The NBFC and banking sector continues to cause concern with fresh cases of default unearthed with depressing regularity. What’s more, credit-rating agencies have clearly failed to identify risks, with many of the defaults emanating from entities with high ratings. This has caused a crisis of confidence in the debt segment. Lenders have turned cautious. Debt funds have been forced to rejig schemes and book losses. Investors have pulled back from the income segment. Even as the Reserve Bank of India has adopted an easy money policy, with an accommodative stance and a sequence of six successive policy rate cuts, it has not managed to turn sentiment around. That could be the central bank’s most challenging task in the months to come — both consumption demand and credit offtake will depend to a large extent on the return of confidence. 

Corporate results and macro-economic growth have now been poor for the past five quarters. Corporate advisories and macro-estimates from investment banks and multilateral institutions suggest that there could be an uptick in the earnings pattern in the next six months, given a reasonable monsoon. Corporate earnings may receive a boost now, if only due to the low base effect. A few factors now favour investors looking at India. One is that global energy prices remain weak, limiting the outgo of forex on that account. Another positive is that inflation remains benign, giving the central bank room to ease monetary policy further if there is need. The economy continues to grow, albeit at a slower pace. Given a large economy like India, there will always be pockets of resilience and interesting investment plays for those who look hard enough. But investors would also like to see signs that the government is looking at a combination of tax code reforms and the simplifying of corporate regulations to encourage investment and consumption. Investors have had to hold their nerve through almost two years of lacklustre equity returns after the markets peaked in early 2018. The data indicates that most of them have kept faith with the markets despite all the bad news. That gives hope that Samvat 2076 would provide more joy than what Samvat 2075 did.